Chetrit Claims Lender 'Stole' Midtown Hotel Development Through Unfair Auction

After losing control of a hotel development near Penn Station to foreclosure, the Chetrit Group claims the group that took over the property effectively stole $20M in equity.

In a lawsuit filed Tuesday in New York State Supreme Court, Chetrit accused Maverick Real Estate Partners of running an improper foreclosure auction for the unfinished project at 255 West 34th St., which resulted in Maverick's winning bid of just $100K. 

Chetrit claims Maverick violated Uniform Commercial Code guidelines and intentionally designed a “commercially unreasonable” auction that ensured no bidders showed up to put their hands up for the interest at the hotel development. As a result, Maverick, as the junior mezzanine lender, was able to “effectively steal the Interest for itself” for $100K.

A recent appraisal on the property valued it at over $140M, Chetrit claimed in the suit. The property had roughly $100M in outstanding debt, which means the interest in the building was worth about $40M. 

Maverick "stole it for itself by paying only $100,000.00 in a commercially unreasonable sale that ensured no one else would show up and try to outbid it," Chetrit wrote in its complaint.

Maverick set out terms that no bidder would agree to, Chetrit claims, including demanding a $200K nonrefundable deposit in order to be admitted, requiring any bidder to close within seven days and reserving the right to reject any bid and keep the deposit.

Maverick also asked for a 10% deposit to be paid within 24 hours and to keep the right to adapt the terms of sale at any time, according to Chetrit's complaint. Sixty-two parties expressed interest in the sale, but none showed up to the auction, and Maverick's $100K bid was enough to take a 100% controlling interest in the hotel project.

Chetrit is seeking at least $20M in damages and legal costs. Neither Chetrit nor Maverick returned a request for comment by press time. An attorney for Chetrit declined to comment.

An entity jointly controlled by Meyer and Joseph Chetrit bought the site near Penn Station in 2014 and began work on building a 323-key hotel in 2019, with plans for IHG Hotels & Resorts to operate the property. Arbor Commercial Mortgage provided construction financing, and between July 2019 and October 2022, Chetrit spent $146M on building the hotel, $112M of which was equity, the lawsuit states.

Just 23 of the 33 stories are now built, and Chetrit says $43M is needed to complete the project, which ground to a halt because of the pandemic, supply chain problems and the costs of materials soaring.

The construction loans were due to mature in January 2022, but the borrowers received a three-month extension. But by that point, interest rates had started to go up and Chetrit couldn't refinance its debt, throwing the project into default. The next month, Maverick bought the $110M note from Arbor and agreed to a forbearance agreement to hold off on foreclosing until October 2022.

Chetrit said in the suit it tried to negotiate with Maverick and suggested even a joint venture to finish the hotel together, a proposal the lender rejected. In January this year, Maverick sued to try and force Chetrit to finish the project or hand over more than $100M in construction costs, Commercial Observer reported. 

Last month, Maverick officially took over control of the property through the entity Penn Hotel Junior LLC, PincusCo first reported. It transferred the deed in a transaction valued at $104.5M. 

Maverick, founded by David Aviram and Ted Martell in 2010, has quickly become one of the most notorious players in New York City real estate, buying distressed loans from lenders and aggressively moving to collect the debts — or take over the properties — from underwater borrowers, The Real Deal reported last year.